Introduction Flashcards
What is the Definition of Economics?
The study of the choices people make and the actions they take in order to make the best use of scarce resources in meeting their wants and needs
What is Scarcity?
It means that the demand for a good or service is greater than the availably of the good or service.
(this can limit the choices available to the consumers who make up the economy)
What is a “reflection” of Scarcity
Prices
In regards to “Economic Choices,” what is the simple rule of thumb
(using the example of activity x)
If the benefits of (x) are greater than the costs of (x), then do the activity
If the costs of (x) are greater than the benefits of (x), then do NOT do activity (x)
What is the “Contingent Valuation Method”
Its a method of estimating the value that a person sees on a good.
(their willingness to pay for a good, or to a accept to give up a good)
What does “Thinking on the Margin” mean
making decisions after thinking about the costs and benefits. and time, money, effort, etc.
(Being rational and not going away from the margin)
What is the basic rule of thumb (using activity x) of “thinking on the margin”
If the marginal benefits of (x) are greater than the marginal cost of (x) then do it.
If the marginal costs of (x) are greater than the marginal benefits of (x) then DON’T do it
What are the two main branches of Economics
Microeconomics and Macroeconomics
What are Microeconomics
The study of choices and actions of individual economic units such as house hols, firms, consumers, etc.
What are Macroeconomics
The study of behaviour of the ENTIRE economy, including issues like unemployment, inflation, and changes in the level of national income
What does Allocation mean?
How resources are distributed to the people who desire the resource (there are different allocation strategies)
Allocation of resources can be evaluated on the basis of what 3 things
1) Efficiency
(allocative efficiency is present when societies resources are so organized that the present value of net benefits are maximized)
2) Equity
(distributing goods and services in a manner considered by society to be fair)
3) Moral and Political Consequences
What are Incentives?
Factors (good and bad) that influence how people make decisions.
eg.tough admission requirements for graduate school provide an incentive for students to study harder in college
What does “ceteris paribus” mean?
holding all other things equal (keeping factors constant)
What is Production Efficiency?
When goods are purchased at the lowest cost
